Atlantic City Financial Outlook: Progress Amidst Risk
Wall Street ratings agency Moody’s has assigned Atlantic City a Baa3 credit rating. While this marks an improvement in the city’s financial standing, it remains on the edge of speculative territory.
The “Baa3” Rating Explained
A Baa3 rating is the lowest possible investment-grade designation. It serves as the threshold before debt is classified as “junk.” This means that while Atlantic City is currently meeting its obligations, it still carries moderate credit risk and could struggle if the economy worsens.
PODCAST: Atlantic City MOODY’s Rating.
Financial Strengths & Dependencies
- Casino Reliance: 40% of the city’s revenue comes from PILOT (Payments in Lieu of Taxes) and online gaming taxes.
- Debt Load: The city currently carries $228 million in debt.
- Governance: Moody’s factors in government stability and infrastructure. Notably, Mayor Marty Small was recently found not guilty of child abuse charges, though other school district officials still face trial.
Future Outlook: Risks and Opportunities
The city’s financial future is tied heavily to the gaming industry. To maintain or improve its rating, Atlantic City must address several factors:
- Potential Upgrades: Could be triggered by permanent extension of PILOT tax program or significant (unlikely) economic diversification beyond gambling.
- Potential Downgrade: Could occur if PILOT program expires (returning casinos to volatile property tax rolls), if the gaming industry declines, or if city’s cash reserves drop below 15%.
- Social Challenges: High crime, homelessness, and concentration of social services viewed as investment risks.
- NYC and North Jersey Casinos: How will Atlantic City deal with potential casino closures?
- Voter Rolls. Atlantic City doesn’t require ID to vote. In the past, Marty Small was indicted twice for voter fraud.
Key Takeaways
- Borderline Investment Grade: Atlantic City has avoided “junk” status but sits at the lowest tier of investment-grade ratings.
- PILOT Program: The city’s fiscal stability depends on keeping the current casino tax structure.
- Diversification: Moody’s emphasizes that Atlantic City must expand its economy beyond the casino floor to protect itself from industry volatility.
- Stability Matters: Legal issues involving the mayor, the city and school leadership remain points of major concern for investors and rating agencies alike.
In addition to finances, MOODY’s looks at department directors, infrastructure improvements, stability of government and it’s Mayor who was recently found not-guilty of abusing teen daughter. Note: Marty Small also found not-guilty of 2 previous indictments involving voter fraud.
News release on Moody’s website.
Key details regarding Baa3 rating:
- Investment Threshold: It is the final, lowest tier before moving into high-yield or speculative (“junk”) territory.
- Context: While considered safe for investment, Baa3 rating means issuer could face challenges if economic conditions worsen.
Investors typically monitor these ratings to assess a company’s or municipality’s ability to meet financial obligations.
Crime, homelessness, needle exchanges / social services contribute to risk.
School District Superintendent LaQuetta Small still facing trial for child abuse. Atlantic City High School principal Constance Days-Chapman also facing prosecution or not properly reporting potential child abuse. Days-Chapman is also Mayor Small’s campaign manager.
